From the History Books

Looking at the tops in September 2018 and April and July 2019 SPX tops, you can see a familiar picture developing right now.  This only strengthens the conviction that the next big move is down, not up.  

 SPX 2018

  

SPX 2019 

SPX 2020

Focusing on the big picture and away from the day to day price movements will give you a clearer view of the next big move.  It is not one factor that is bearish here, it is a number of them.  

1) Fundamental overvaluation

2) Lots of complacency after a 4 month rally (low put/call ratio, Robinhood speculation in big cap tech and pump and dumps)  

3) Negative catalysts on the horizon with Covid second wave concerns with school reopening and November election with Biden having a big lead in the polls.  

4) Parabolic Nasdaq favorites suddenly topping out over the past 2 weeks.  Lots of future bagholders in the works in TSLA and other momos.  

5) Seasonal weakness starting from late July to middle of October. 

I have one leg in short, and plan on adding the second leg on the next rally if/when it happens next week, which is most likely scenario, according to my short term timing model.  I don't cover today because too many longer time frame metrics are pointing to an imminent correction.  If there is no rally next week, hide the women and children, it is going to get brutal out there real fast.  

I am expecting the Covid case numbers in the US come down over the coming weeks, which my get some bulls excited, but I don't expect that to be a bull catalyst.  Its not about the current Covid numbers, its about the future Covid cases which are the big uncertainty.  And unless its radically reduced in the US, which is very unlikely due to a large disobedient population, a large base of live virus cases will keep the fire burning, with potential for a big outbreak at anytime.   Vaccine hopes are hyped up right now, but many will refuse to take them for safety/conspiracy theory concerns, making herd immunity nearly impossible.  Plus, new studies coming out showing that antibodies mostly disappear after 3 months, and cases of people getting the virus a 2nd time a few months later.  

Hopefully traders get excited about the phase 4 coronavirus deal coming up and bid up stocks next week as we get closer to it being passed.  Even though I am short, I want to add more at higher prices.  The longer they delay the deal, the more likely the big correction will be delayed.  Because there will be a group of traders that refuse to sell and hold on expecting a rally after the deal is passed.  But at the latest, it probably gets passed on August 7, the last day Congress is in session before their generous vacation time till after Labor Day.